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1) The steps taken to move and store a product from the supplier stage to a customer stage
in the supply chain are referred to as
A) transportation.
B) retailing.
C) wholesaling.
D) distribution.

2) Where does distribution occur in the supply chain?

A) Between every pair of stages
B) Everywhere downstream from production
C) Between production and the retailer
D) Between suppliers and retailers
Answer: A
Diff: 2
Topic: 4.1 The Role of Distribution in the Supply Chain
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

3) Distribution is a key driver of the overall profitability of a firm because A)

the addition of distributors only adds cost to the supply chain.
B) it directly impacts both the supply chain cost and the customer experience.
C) it slows down the responsiveness of the supply chain.
D) it cannot be developed as a part of supply chain strategy.
Answer: B
Diff: 2
Topic: 4.1 The Role of Distribution in the Supply Chain
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.
4) Companies in the same industry often select very different distribution networks because A)
some companies are poorly run.
B) different companies try to avoid using the same approach.
C) different companies have different objectives for their supply chain.
D) all of the above
Answer: C
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

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5) Which of the following would not be the result of a poor/inappropriate distribution network?
A) High profitability
B) Low level of customer service
C) High cost
D) Poor profitability
Answer: A
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

6) The number of different products/configurations that a customer desires from the distribution
network is
A) response time.
B) product variety.
C) product availability.
D) customer experience.
Answer: B
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

7) The probability of having a product in stock when a customer order arrives is A)

response time.
B) product variety.
C) product availability.
D) customer experience.
Answer: C
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

8) The ease with which the customer can place and receive their order as well as other aspects of
value that the sales staff provides is A) customer experience.
B) order visibility.
C) product availability.
D) response time.

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Answer: A
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

9) The ability of the customer to track their order from placement to delivery is A)
customer experience.
B) order visibility.
C) product availability.
D) response time.
Answer: B
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

10) The costs incurred in bringing material into a facility are A)

sourcing transportation costs.
B) outbound transportation costs.
C) crossbound transportation costs.
D) inbound transportation costs.
Answer: D
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

11) The costs incurred in sending material out of a facility are A)

sourcing transportation costs.
B) outbound transportation costs.
C) crossbound transportation costs.
D) inbound transportation costs.
Answer: B
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

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12) Outbound transportation costs per unit tend to be A)

about the same as inbound costs.
B) higher than inbound costs.
C) lower than inbound costs.
D) neither higher or lower than inbound costs.
Answer: B
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

13) As the number of facilities in a supply chain increases A)

the inventory and resulting inventory costs also increase.
B) the inventory and resulting inventory costs decrease.
C) the inventory increases and resulting inventory costs decrease.
D) the inventory decreases and resulting inventory costs increase.
Answer: A
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

14) As the response time desired by the customer decreases, the required number of facilities in
the distribution network A) decreases.
B) remains the same.
C) increases.
D) increases and then decreases.
Answer: C
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytical thinking
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

15) As the number of facilities in a supply chain increases, total facility costs A)
decrease.
B) increase.
C) increase to a point and then decrease.
D) decrease to a point and then increase.
Answer: B
Diff: 2

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Topic: 4.2 Factors Influencing Distribution Network Design

AACSB: Analytical thinking
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

16) Total logistics costs for a supply chain network are a sum of A)
inventory and facility costs.
B) inventory, facility, and distributor costs.
C) facility, transportation, and distributor costs.
D) inventory, transportation, and facility costs.
Answer: D
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytical thinking
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

17) In which distribution network design is product shipped directly from the manufacturer to the
end customer, bypassing the retailer (who takes the order and initiates the delivery request)?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
Answer: A
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

18) Which distribution network is also referred to as drop-shipping with product delivered
directly from the manufacturer to the customer location?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
Answer: A
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

19) Which of the following is an advantage of manufacturer storage with direct shipping?

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A) Transportation costs are low because the average outbound distance to the end consumer
is small and package carriers are used to shipping the product.
B) Supply chains save on the fixed cost of facilities, because the need for other warehousing
space in the supply chain has been eliminated.
C) Response times tend to be small because the order has to be transmitted from the retailer
to the manufacturer.
D) Order tracking is easy to implement because of the complete integration of information
systems at both the retailer and the manufacturer.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.
20) Which of the following would be a disadvantage of manufacturer storage with direct
shipping?
A) The ability to reduce cost of inventory by centralizing inventories at the manufacturer.
B) The manufacturer has to postpone customization until after the customer order has been
placed.
C) Supply chains have to eliminate other warehousing space to save on the fixed cost of
facilities.
D) Response times tend to be large because the order has to be transmitted from the retailer to
the manufacturer and shipping distances are on average longer from the manufacturer's
centralized site.
Answer: D
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

21) Which distribution network design is similar to pure drop-shipping, except that pieces of the
order coming from different locations are combined so that the customer gets a single delivery?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with manufacturer pickup
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

22) The main advantage of in-transit merge over drop-shipping is

A) the ability to reduce cost of inventory by centralizing inventories at the manufacturer.

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B) supply chains save on the fixed cost of facilities, because the need for other warehousing
space in the supply chain has been eliminated.
C) somewhat lower transportation cost and improved customer experience.
D) order tracking is easy to implement because of the complete integration of information
systems at both the retailer and the manufacturer.
Answer: C
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.
23) The major disadvantage of in-transit merge compared to drop-shipping is
A) transportation costs are high because the average outbound distance to the end consumer
is large and package carriers are used to shipping the product.
B) response times tend to be large because the order has to be transmitted from the retailer to
the manufacturer and shipping distances are on average longer from the manufacturer's
centralized site.
C) order tracking becomes harder to implement because it requires complete integration of
information systems at both the retailer and the manufacturer. D) the additional effort during the
merge itself.
Answer: D
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

24) Which distribution network design is being used when inventory is not held by
manufacturers at the factories, but is held by distributors/retailers in intermediate warehouses and
package carriers are used to transport products from the intermediate location to the final
customer?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with manufacturer pickup
Answer: C
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

25) Which of the following is an advantage of distributor storage with carrier delivery? A)
Inventory cost is higher than with manufacturer storage.
B) Product variety is lower than with manufacturer storage.
C) Order visibility for the customer is easier than with manufacturer storage.

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D) Higher cost to provide the same level of product availability as manufacturer storage. Answer:
C
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

26) Which of the following is a disadvantage of distributor storage with carrier delivery? A)
Information infrastructure is simpler than manufacturer storage.
B) Response time is faster than with manufacturer storage.
C) Returnability is easier than with manufacturer storage.
D) Product variety is lower than with manufacturer storage.
Answer: D
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

27) Which distribution network design is being used when the distributor/retailer delivers the
product to the customer's home instead of using a package carrier?
A) Manufacturer storage with direct shipping
B) Manufacturer/distributor storage with customer pickup
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
Answer: D
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

28) Which of the following is an advantage of distributor storage with last mile delivery?
A) It is more expensive to provide product availability than any other option except retail stores.
B) Inventory cost is higher than distributor storage with package carrier delivery.
C) Response time is very quick ranging from same day to next day delivery.
D) Transportation cost is higher than any other distribution option.
Answer: C
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

29) Which of the following is a disadvantage of distributor storage with last mile delivery? A)
Transportation cost is higher than any other distribution option.

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B) Information cost is similar to distributor storage with package carrier delivery.

C) Customer experience is very good, particularly for bulky items.
D) Returnability is easier to implement than other options.
Answer: A
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

30) Which distribution network design is being used when inventory is stored at the
manufacturer or distributor warehouse but customers place their orders online or on the phone
and then come to designated pickup points to collect their orders?
A) Manufacturer storage with direct shipping
B) Manufacturer/distributor storage with customer pickup
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

31) Which of the following is an advantage of manufacturer/distributor storage with customer

pickup?
A) Facility costs can be very high if new facilities have to be built.
B) Transportation cost is lower than the use of package carriers, especially if using an existing
delivery network.
C) Order visibility is difficult but essential.
D) Product variety is similar to other manufacturer or distributor storage options.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

32) Which of the following is a disadvantage of manufacturer/distributor storage with customer

pickup?
A) Customer experience is lower than other options because of the lack of home delivery.
B) Response time is similar to package carrier delivery with manufacturer or distributor storage.
C) Returnability is somewhat easier given that pickup location can handle returns.
D) Product availability is similar to other manufacturer or distributor storage options. Answer: A
Diff: 3
Topic: 4.3 Design Options for a Distribution Network

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AACSB: Application of knowledge

Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

33) Which distribution network design is being used when inventory is stored locally at retail
stores and customers walk into the retail store or place an order online or on the phone and pick
it up at the retail store?
A) Manufacturer storage with direct shipping
B) Distributor storage with package carrier delivery
C) Distributor storage with last mile delivery
D) Retail storage with customer pickup
Answer: D
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

34) Which of the following is an advantage of retail storage with customer pickup? A)
Inventory cost is higher than all other options.
B) Transportation cost is lower than all other options.
C) Facilities and handling costs are higher than other options.
D) Product variety is lower than all other options.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

35) Which of the following is a disadvantage of retail storage with customer pickup?
A) Returnability is easier than other options given that pickup location can handle returns.
B) Inventory cost is higher than all other options.
C) Transportation cost is lower than all other options.
D) Facilities and handling costs are lower than other options.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

36) Distributors add value to a supply chain between a supply stage and a customer stage A)
if there is a small number of customers requiring a large amount of product.
B) if there is a large number of customers requiring a large amount of product.
C) if there are many small players at the customer stage, each requiring a small amount of the
product at a time.

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D) if there are a few large players at the customer stage, each requiring a large amount of the
product at a time.
Answer: C
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Analytical thinking
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

37) Improvement in supply chain performance at the result of distributors occurs for which of the
following reasons?
A) Reduction in transportation cost because of LTL shipments from manufacturers to distributor.
B) Reduction in outbound transportation cost because the distributor combines products from
many customers into a single outbound shipment.
C) Reduction in inventory costs because distributor disaggregates safety inventory rather
than aggregating at each retailer.
D) A more stable order stream from distributor to manufacturer (compared to erratic orders
from each retailer) allows manufacturers to lower cost by planning production more effectively.
Answer: D
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

38) ________ is a cost factor performance characteristic of Retail Storage at Consumer Pickup
Sites that is higher than all other options.
A) Transportation
B) Inventory
C) Information
D) Facilities and Handling
Answer: B
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

39) ________ is a service factor performance characteristic of Retail Storage at Consumer

Pickup Sites that is lower than all other options.
A) Response time
B) Product variety
C) Product availability
D) Time to market
Answer: B
Diff: 3
Topic: 4.3 Design Options for a Distribution Network

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AACSB: Application of knowledge

Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

40) ________ is a service factor performance characteristic of Manufacturer or Distributor

Storage with Customer Pickup that is lower than other options because of the lack of home
delivery. Experience is very sensitive to capability of pickup location.
A) Response time
B) Product variety
C) Customer experience
D) Time to market
Answer: C
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

41) ________ is a cost factor performance characteristic of Manufacturer or Distributor Storage

with Customer Pickup that is lower than the use of package carriers, especially if using an
existing delivery network.
A) Transportation
B) Inventory
C) Information
D) Facilities and Handling
Answer: A
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

42) In general, traditional brick and mortar retail sales outperform online sales along the
dimension of
A) product variety.
B) request fulfillment.
C) time to market for a new product.
D) order status tracking.
Answer: B
Diff: 2
Topic: 4.4 Online Sales and the Distribution Network
AACSB: Application of knowledge
Objective: LO 4.3: Understand how online sales have affected the design of distribution
networks in different industries.
43) In general, traditional brick and mortar retail sales outperform online sales along the
dimension of

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A) product variety.
B) efficient funds transfer.
C) product returns.
D) order status tracking.
Answer: C
Diff: 2
Topic: 4.4 Online Sales and the Distribution Network
AACSB: Application of knowledge
Objective: LO 4.3: Understand how online sales have affected the design of distribution
networks in different industries.

44) In general, online sales outperform traditional brick and mortar retail sales along the
dimension of
A) order fulfillment.
B) trying before you buy.
C) product returns.
D) order status tracking.
Answer: D
Diff: 2
Topic: 4.4 Online Sales and the Distribution Network
AACSB: Application of knowledge
Objective: LO 4.3: Understand how online sales have affected the design of distribution
networks in different industries.

45) Online sales increase ________ when compared to the performance of traditional brick and
mortar retail stores.
A) outbound transportation costs
B) the inventory holding cost
C) the cost of building and maintaining facilities in a supply chain network
D) overall supply chain costs
Answer: A
Diff: 2
Topic: 4.4 Online Sales and the Distribution Network
AACSB: Application of knowledge
Objective: LO 4.3: Understand how online sales have affected the design of distribution
networks in different industries.

46) An online grocery store has a distinct advantage over a traditional model in the area of
A) Processing costs
B) Transportation costs
C) Facility costs
D) Information costs
Answer: C

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Diff: 2
Topic: 4.4 Online Sales and the Distribution Network
AACSB: Application of knowledge
Objective: LO 4.3: Understand how online sales have affected the design of distribution
networks in different industries.

47) An online book store has a distinct disadvantage over a traditional model in the area of
A) Product variety
B) Transportation
C) Product availability
D) Flexible pricing
Answer: B
Diff: 2
Topic: 4.4 Online Sales and the Distribution Network
AACSB: Application of knowledge
Objective: LO 4.3: Understand how online sales have affected the design of distribution
networks in different industries.

48) Which of these costs was higher for Netflix than for their vanquished competitor,
Blockbuster?
A) Property
B) Inventory
C) Facility
D) Transportation
Answer: D
Diff: 2
Topic: 4.4 Online Sales and the Distribution Network
AACSB: Application of knowledge
Objective: LO 4.3: Understand how online sales have affected the design of distribution
networks in different industries.

49) Which of these statements about distribution networks is best?

A) A manufacturer that owns their own distribution network cannot control the network's
actions.
B) Customers are willing to have a relationship built around high value, specialized products.
C) Distribution networks that have identical physical flows but different ownership structures
have identical performance.
D) It is important to have static distribution networks.
Answer: B
Diff: 1
Topic: 4.5 Distribution Networks in Practice
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

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50) In order to reap the greatest return from the online channel for physical goods, firms should
A) maximize the return for each distinct supply chain member.
B) minimize interactions between the buyer and the other supply chain members.
C) integrate it with their existing supply chain networks.
D) ensure that they have total ownership of the supply chain.
Answer: C
Diff: 2
Topic: 4.5 Distribution Networks in Practice
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

4.3 Essay Questions

1) Explain the measures of customer service that are influenced by the structure of the
distribution network.
Answer: Response time is the time between when a customer places an order and receives
delivery.
Product variety is the number of different products/configurations that a customer desires from
the distribution network.

Availability is the probability of having a product in stock when a customer order arrives.
Customer experience includes the ease with which the customer can place and receive their
order. It also includes purely experiential aspects, such as the possibility of getting a cup of
coffee and the value that the sales staff provides.

Order visibility is the ability of the customer to track their order from placement to delivery.
Returnability is the ease with which a customer can return unsatisfactory merchandise and the
ability of the network to handle such returns.
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

2) Explain how the design of the distribution network affects the cost of the four supply chain
drivers.
Answer: As the number of facilities in a supply chain increases, the inventory and resulting
inventory costs also increase. To decrease inventory costs, firms try to consolidate and limit the
number of facilities in their supply chain network.

Outbound transportation costs per unit tend to be higher than inbound costs because inbound lot
sizes are typically larger. Increasing the number of warehouse locations decreases the average
outbound distance to a customer and makes outbound transportation distance a smaller fraction

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of total distance traveled by the product. Thus, as long as inbound transportation economies of
scale are maintained, increasing the number of facilities decreases total transportation cost.
Facility costs decrease as the number of facilities is reduced, because a consolidation of facilities
allows a firm to exploit economies of scale. As the number of facilities increases, total logistics
costs first decrease and then increase. Each firm should have at least the number of facilities that
minimize total logistics costs.

As a firm wants to further reduce the response time to its customers, it may have to increase the
number of facilities beyond the point that minimizes logistics costs. A firm should add facilities
beyond the cost-minimizing point only if managers are confident that the increase in revenues
because of better responsiveness is greater than the increase in costs because of the additional
facilities. In general, no distribution network will outperform others along all dimensions. Thus,
it is important to ensure that the strengths of the distribution network fit with the strategic
position of the firm.
Diff: 3
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Application of knowledge
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.
3) Explain the six distinct distribution network designs that may be used to move products from
factory to customer.
Answer: In manufacturer storage with direct shipping, product is shipped directly from the
manufacturer to the end customer, bypassing the retailer (who takes the order and initiates the
delivery request). This option is also referred to as drop-shipping with product delivered directly
from the manufacturer to the customer location.

Manufacturer storage with direct shipping and in-transit merge is similar to pure drop-shipping,
except that pieces of the order coming from different locations are combined so that the customer
gets a single delivery.

Distributor storage with package carrier delivery is being used when inventory is not held by
manufacturers at the factories, but is held by distributors/retailers in intermediate warehouses,
and package carriers are used to transport products from the intermediate location to the final
customer.

Distributor storage with last mile delivery is being used when the distributor/retailer delivers the
product to the customer's home instead of using a package carrier.

Manufacturer/distributor storage with customer pickup is being used when inventory is stored at
the manufacturer or distributor warehouse but customers place their orders online or on the
phone and then come to designated pickup points to collect their orders.

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Retail storage with customer pickup is being used when inventory is stored locally at retail stores
and customers walk into the retail store or place an order online or on the phone and pick it up at
the retail store.
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.
4) Explain how distributors add value to a supply chain and improve its performance.
Answer: Distributors add value to a supply chain between a supply stage and a customer stage if
there are many small players at the customer stage, each requiring a small amount of the product
at a time. The value added increases if distributors carry products from many manufacturers.
Improvement in supply chain performance occurs for the following reasons:
• Reduction in inbound transportation cost because of TL shipments from manufacturers to
distributor.
• Reduction in outbound transportation cost because the distributor combines products from
many manufacturers into a single outbound shipment.
• Reduction in inventory costs because distributor aggregates safety inventory rather than
disaggregating at each retailer.
• A more stable order stream from distributor to manufacturer (compared to erratic orders from
each retailer) allows manufacturers to lower cost by planning production more effectively.
• By carrying inventory closer to the point of sale, distributors are able to provide a better
response time than manufacturers can.
• Distributors are able to offer one-stop shopping with products from several manufacturers.
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
AACSB: Application of knowledge
Objective: LO 4.2: Discuss the strengths and weaknesses of various distribution options.

5) Total logistics costs are the sum of inventory, transportation, and facility costs for a supply
chain network. What occurs as the number of facilities increases?
Answer: Total logistics costs first decrease and then increase as the number of facilities
increases. Each firm should have at least the number of facilities that minimize total logistics
costs. For example, Amazon has more than one warehouse primarily to reduce its logistics costs
(and improve response time). If a firm wants to reduce the response time to its customers further,
it may have to increase the number of facilities beyond the point that minimizes logistics costs. A
firm should add facilities beyond the cost-minimizing point only if managers are confident that
the increase in revenues because of better responsiveness is greater than the increase in costs
because of the additional facilities.
Diff: 3
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytical thinking
Objective: LO 4.1: Identify the key factors to be considered when designing a distribution
network.

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